How to stop money from going down the drain

After his property management company started charging residents for water, Nick Moos heard his first complaint: “Now I won't be able to run the shower to help me sleep.” Moos, director of field operations with Price Management in Kansas City, learned that the resident had been running the shower throughout the night as background noise. Far from soothing, to Moos it was the sound of money going down the drain.

When water and sewer costs, or any other utility costs, are included in apartment rent or fixed common area maintenance charges (for commercial space), residents have no incentive to conserve. For many of these residents, water is at best “free.” At worst, some take the view that since the landlord is including water in their rent charges, they are going to use as much as they please.

According to a 2002 income/expense analysis of apartments and office buildings conducted by the Institute of Real Estate Management (IREM), water and sewer costs are often the largest variable expense for rental property owners.

Tapping Solutions

The first step an owner can take is to make sure aerators, shower heads and toilets are installed with restricted-flow devices. In addition, owners should seriously consider charging residents for their water and sewer costs separate from rent.

Industry research shows that this is the surest way to decrease usage. In 1999, the National Apartment Association and the National Multi Housing Council published a joint study showing that properties with individual water submeters experienced an 18% to 39% decrease in water usage, while properties that distributed water bills on an allocation basis registered a decrease of 6% to 27%.

There are many reasons for separating water and sewer charges from rent. The practice improves a property's net operating income and resale value. At the same time, it provides a hedge against unpredictable rate increases and offers an alternative to rent hikes. Most importantly, it encourages responsible water usage.

The combined effects of a nationwide drought and ongoing population expansion are putting an unprecedented strain on water and wastewater resources, which is in turn leading to widespread rate increases. Baltimore recently hiked water rates by 15% and Lawrence, Kan., increased rates by 12%. In addition, Mobile, Ala., is raising water rates by 15% and Augusta, Ga., is hiking rates by 10%.

In Beavercreek, Ohio, just outside of Dayton, water costs $10.72 per 1,000 gallons. To put that into perspective, consider that an average household with efficient water fixtures uses somewhere around 4,500 gallons of water per month, translating into an average monthly water bill exceeding $48. On a relatively small, 100-unit apartment property, the annual water budget could easily exceed $57,000.

Tough Stance in Texas

No state has been more cognizant of the conservation benefits of separate water and sewer billing than Texas, which not only regulates the practice, but is mandating that water submeters be included in all new apartment construction started after Jan. 1, 2003. The state also has adopted a new plumbing code that requires aerators and showerheads to meet a low-flow requirement, and that all toilets that exceed 3.5 gallons of water per flush be replaced with 1.6-gallon toilets.

As other states are forced to deal with diminishing water supplies and escalating costs, they, too, must seriously consider the usage habits of renters and support property owners that wish to pass these charges back to their residents.

There are two basic methods of charging residents for water: install individual submeters or mathematically allocate the property's water bills among residents.

Although submeters may seem the fairest solution, they make practical sense only on properties whose plumbing configuration is conducive to meter installation. Projects still on the drawing board, of course, can and should anticipate the inclusion of water submeters. For many existing properties, however, meter installation can be either impractical or impossible. In these cases, an allocation program is the only option.

Regardless of whether apartment managers use submeters or allocation programs, separating water charges from rent benefits both the environment and an apartment owner's bottom line.

Michael Miller is president of American Utility Management, a utility submetering and billing company based in Hillside, Ill. The company's Web site is www.aum-inc.com.